OPINION

The conundrum of inequality in SA

RW Johnson |

20 February 2018

RW Johnson says the immiseration of the poor is paying for the self-enrichment of our new racial elite

The conundrum of inequality in South Africa

The rising incidence of social and economic inequality throughout the capitalist world is now established as a standard feature of what the Left used to call “late capitalism”. Discussion of this phenomenon was greatly stimulated by Thomas Piketty’s Capital in the Twenty First Century, but even before the publication of Piketty’s great work there had already been increasing comment and discontent over the way that almost all the gains accruing from the great technological changes of the past few decades have gone to the top 1% of most such societies – erupting most notably, of course, in the Occupy Wall Street movement. Unease over this phenomenon has helped to power a variety of political movements, including Brexit and the election of Donald Trump, and since inequality has neither gone away nor even been reduced, it is safe to assume that this will continue.

South Africa occupies a special place in such discussion because, on many reckonings, it is either the first or second most unequal society in the world and there too there has been a notable increase in inequality in the last generation. And Piketty’s main argument – that gains accruing to capital always outrun those accruing to wages – certainly applies to South Africa: the gains made by investors on the Johannesburg Stock Exchange over the last twenty five years far outrun what even skilled workers have been able to achieve. And, of course, the biggest gains have been made by the largest owners of capital.

An “economic Codesa”

This phenomenon has led to much hand-wringing and desperate pleas by right-thinking people, saying that somehow South Africa must redistribute wealth in order to empower the poor. Very often this is conceived of as a huge voluntary effort, to be achieved by what is known as “an economic Codesa”. This refers back to the great negotiations of the 1990s to produce “a Constitution for a Democratic South Africa”, or Codesa for short. And since Codesa did produce the 1996 Constitution – regarded as the Holy Grail of the new South Africa – it is generally viewed as a great success.

No one has ever specified quite what would be supposed to happen at an economic Codesa but the general idea seems to be that the owners of capital would sit down with the representatives of the poor – presumably the ANC, the trade unions and the Communist Party – and make a large transfer of capital to them. In the new mood engendered by a Ramaphosa presidency it is likely that such corporatist solutions will again be mooted.

There are many problems with the idea of a large voluntary transfer of resources through an economic Codesa, starting with the fact that such a thing has never happened before anywhere in the world. Typically, such large transfers of capital have occurred only when Communist or other Left governments have forcibly seized capital from the capitalists – with uniformly disastrous results. Moreover, even as it is, South Africa is very heavily taxed and its companies have to work hard in order to be profitable. So if large amounts of capital were transferred, many of those companies would collapse and, without doubt, this would be accompanied by a large flight of capital and skills.

The causes of inequality

However, before one gets involved in discussions about such an obviously chimerical solution it would be better to look a bit more carefully at the causes of inequality in South Africa. Four causes stand out. First, there are the inequalities inherited from the apartheid era. These are of two kinds, those of financial and human capital. In a handful of cases particular families have accumulated very large sums but what matters for the generality, both black and white, is human capital. The only way one can “transfer” this is through education, so this turns out to mean a large reform of the educational system with better trained teachers and higher standards from top to bottom.

The barriers to this are well known and they are political. One would need to weed out inadequate or delinquent teachers, institute regular inspections, break the power of the SADTU union, strengthen parent-teacher associations, increase the powers of school governors, allow for more cheap private schools, and gradually raise the level of both internal school examinations and then of Matric. One would also make education in the mother tongue compulsory for the first few years of schooling and raise university admission standards to a level at which most students who are admitted actually pass. This last measure will not only save vast sums of money but it should guarantee that students who become teachers will be of a higher calibre. Within higher education appointments would be made on strictly meritocratic lines – the only way to safeguard and improve standards over time.

There are also a whole raft of reforms one would need to make to technical, distance and adult education but the point will already be clear: in effect an entire array of pressure groups will resist almost all of these reforms. Although many of them will claim to be left-wing, they are all actually fighting to preserve the inequalities in human capital.

Mass unemployment

The second and perhaps the largest cause of inequality is unemployment. Mass unemployment is simply the most effective way anyone has found of transferring resources from the poor to the better off. Here, the record is clear. The ANC came to power in 1994 on the slogan “Jobs, jobs, jobs” but under it unemployment has gone from 3.7 million to 9.4 million (4th quarter, 2017). In effect, the jobless have simply been ignored. True, the system of social grants has thrown a little money at the problem but there has been no concerted effort to increase economic growth, which is the only way to create sustainable jobs.

The best way to increase the rate of growth would be a sweeping liberalization of the economy with the privatization of many of the state-owned industries, reform of the labour laws, far more permissive conditions for the immigration of skilled workers and managers, the repeal of Black Economic Empowerment legislation and, at the least, a large relaxation of the so-called Employment Equity legislation – which is really just the return of job reservation under another name. There is no doubt that if these reforms were carried out and there was a reasonable certainty that they would remain in place, there would be large inflows of both domestic and foreign investment, producing much faster growth – and a rapid diminution of unemployment. (The only question then would be whether the reformed education system could keep pace by supplying enough better educated/skilled labour to the labour market.)

There is no doubt that, as in India or China, such reforms would lift vast swathes of the population out of poverty and unemployment and thus reduce inequality. But these reforms would also be fought tooth and nail by all the groups in South African society that call themselves left wing, so once again it would be these groups that would bar the path to greater equality.

Freehold tenure

The third major barrier to greater equality is the lack of individual freehold tenure in the former Bantustans. There is nothing like a drive through the Transkei to break your heart. There are vast rolling acres of well-watered, good agricultural land – growing almost nothing and suffering terribly from soil erosion. If the local people all owned their land and farmed it they would be able to produce vast quantities of agricultural goods, supplying not only their own needs but those of the major cities, thus earning a far better living for hundreds of thousands, perhaps millions, of small peasant farmers.

Land would become more valuable and it would then pay to take measures to stop soil erosion (as occurred long ago on all properly farmed land). Many of these new farmers are currently unemployed, so there would be a large gain in employment, in living standards, in food production and in equality. In addition, of course, one would then be training a whole legion of small black farmers who might progress to larger-scale commercial farming.

The barrier to such a development is twofold. First, such a reform would be resisted by the chiefs, who jealously guard their traditional right to allocate land. Second, the government might feel some ambivalence at the growth of a large class of small black farmers and it is inclined to prefer the nationalisation of land which could then be rented out, creating a class of tenant farmers.

This is a vastly inferior solution, for tenant farmers have far less incentive to invest in their farms or to try to deal with soil erosion. But the key point, of course, is that the ruling ANC now relies on the chiefs to marshal the rural vote for them and do not wish to incur their displeasure. So the ANC, which certainly sees itself as left wing, once again bars the way to achieving a reduction in inequality.

A parasitic elite

The final great factor increasing inequality in South Africa is the black elite itself, not just the politicians but the civil service and the functionaries in the state owned enterprises. This group has rewarded itself richly since 1994 – public sector pay is usually 30% higher than its private sector equivalent. In practice almost all these jobs are racially reserved for blacks (particularly Africans). The politicians have almost invariably become not just well off but rich.

Corruption is the norm, with many politicians and civil servants also running private companies to which they divert orders. To these groups one should add the small number of politically connected blacks who benefit from massively lucrative BEE deals. Naturally, these groups are densely interconnected. Together they absorb large amounts of money – South Africa’s civil service, for example, is both far larger and far better paid than any of its peers in middle income developing countries.

What these groups have in common is that they are almost completely parasitic. Politicians may be rich but the country is abominably badly run and policy is more often than not irrational. The civil service is almost completely dysfunctional, the SOEs have been run into the ground and after more than twenty years of BEE it is impossible to point to any black-run enterprise of any size which offers new products or services. Cyril Ramaphosa is the leading example of BEE, with a fortune of $420 million acquired in less than two decades from a standing start – and yet it is impossible to associate him with any particular industry.

He has directorships here and there, owns large numbers of shares in this or that white-managed company but it is very difficult to say what has been achieved thereby other than making Ramaposa rich. It is perhaps no accident that Herman Mashaba, who made his fortune with the black cosmetics firm Black Like Me, did so without any help from BEE, a policy which he rather despises.

The parasitic nature of this new elite means that a large amount of resources flow in their direction, with no particular product. And what has happened is that to the old apartheid era inequalities has been added this whole new class, extremely well endowed but non-productive. And, of course, many of the beneficiaries of this situation regard themselves as very left wing – speaking of themselves as “revolutionaries”, calling one another “comrade” and often advocating radical measures of redistribution. Yet, of course, they would fight like wild cats to preserve their privileges of this parasitic new elite.

Thus the conundrum

The particularly toxic fact is that the vast increase in unemployment is due largely to the mistaken policies and the incompetent and often corrupt administration of this new elite. Thus the key redistributive motor of post-liberation South Africa: the immiseration of millions of poor blacks from whom wealth is redistributed to help fund the parasitic new elite above them. This is the essential reason why inequality has increased so sharply in post-1994 South Africa. After all, the apartheid inequalities and the lack of freehold land tenure in the old Bantustans existed before 1994: the new factors are the parasitic elite and the huge expansion of unemployment.

This phenomenon should be seen in comparative perspective. As early as 1962 Rene Dumont observed that the new countries of Africa were ruled by a “bureaucratic bourgeoisie”[1] and in the years that followed it became clear that this was the pattern throughout Africa. And many members of this new elite were seriously rich. This is a point powerfully made by the neo-Marxist critic, Jean-Francois Bayart:

“Within the space of a few decades the production of inequality has made a qualitative leap in relation to previous centuries. Indigenous dominant groups have never had at their disposal so many resources, political, economic and military, with which to enforce their domination and assure the autonomy of their own power. Social stratification has never been as wide. This is not simply the reproduction of ancient hierarchies....”[2]

This is surely correct. Imagine a young Jacob Zuma under the rule of Cetswayo or a young Mobutu in the pre-colonial Congo. At very most they might have hoped to emulate the lifestyle of a chief – a simple kraal, a few wives and a few dozen cattle. But the colonial and then the post-colonial order changed all that. Today they can have oil concessions worth billions, chateaux in France, private aeroplanes, large cars, let alone well-padded foreign bank accounts. They command large security apparatuses, tap the phones of friend and foe alike, and can order jet fighters, warships and rocket-firing helicopters into action.

Who pays?

But if the bureaucratic bourgeoisie has thus elevated itself in this remarkable way, who is paying for it? In most African countries there could only be one answer: the peasantry, which still made up 80-90% of the population. Typically the new elite set up a series of marketing boards to which the peasants were compelled to sell their cash crops and these boards were milked to provide resources for the new elite.

On top of which, of course, tax regimes were devised funnelling resources to government, much of which was appropriated by the elite. South Africa, though, is different. Here the main redistribution of wealth and income towards the bureaucratic bourgeoisie has not been away from the peasantry but from the urban poor. This is a peculiarly toxic situation, for even as the new elite accumulates further resources it also creates, by sins of commission and omission, the conditions under which the urban poor become further immiserated, chiefly through unemployment.

Thus the conundrum of inequality in South Africa: everyone deplores the fact of such great inequality but all the measures capable of reducing that inequality are resisted by the forces of the left, even though they claim to represent the poor. Instead the non-solution of an economic Codesa is proposed. This, it should be realised, is more or less bound to follow the example of previous non-solutions such as affirmative action and BEE, in that the lion’s share of any resources put on the table will almost certainly end up in the pockets of the black elite. In effect this small group – a few hundred thousand people – follow only one law, the law of primary accumulation. Yet any attempt to constrain this group comes up against the fact that, in its own eyes at least, its dominance is synonymous with liberation.

So is this conundrum insoluble? And is South Africa doomed to see ever higher rates of inequality? The answer has to be probably, yes. One can hope for two things which may alleviate the problem. The first is that reformist members of the black elite talk of reforms that are necessary in order to create the conditions for “sustainable wealth extraction”. It is possible that in order to achieve this they may embark on economic policies aimed at maximizing growth and employment. At the least, this would have the coincidental effect of reducing inequality. But as we have seen, there are strong forces resisting the means to higher growth. And Ramaphosa’s corporatism certainly won’t cut it. The second hope is that we may at last begin to understand why this problem has developed, dispense with the naive and populist non-solutions advanced to “cure” it and thus put ourselves in a more realistic position to do something about it.